What Is a Smart Contract Audit and How Does It Work?

This post may contain affiliate links. If you use these links to buy something we may earn a commission. Thanks!

A smart contract audit is a critical step in the development of a blockchain-based application as it helps to ensure the security, reliability, and accuracy of the code.

Let’s begin by looking at the steps of the audit process.

Steps of the Audit Process

A smart contract audit is a critical step in the development of a blockchain-based application as it helps to ensure the security, reliability, and accuracy of the code. The audit process involves the following steps:

1. Review of the Code

The auditor will review the code to understand how the smart contract functions and identify any potential vulnerabilities or weaknesses. They will check for issues such as a lack of proper error handling, incorrect use of cryptographic functions, and potential exploits that could result in the loss of funds.

2. Automated Testing

Automated testing tools can be used to scan the code and identify any potential security vulnerabilities or bugs in the network. These tools can run various types of tests such as code coverage analysis, security analysis, and fuzz testing.

3. Dynamic Analysis

Dynamic analysis involves running the smart contract on a blockchain network and testing its behavior in real-world scenarios. This can help to identify issues that may not have been apparent in the code review or automated testing stages.

4. Code Improvement Suggestions

After the audit, the auditor will provide a report that outlines any issues they have identified and offer suggestions for improvement. The report may also include recommendations for best practices to be followed in the development of future smart contracts.

It’s important to note here that a smart contract audit is a one-time process and that the code may need to be audited again if changes are made to it. Regular audits are also recommended as part of a comprehensive security strategy for blockchain-based applications.

What is Automated Testing?

Automated testing is a technique used in smart contract auditing to systematically test the code of a smart contract for increased functionality and security.

The goal of automated testing is to uncover as many issues as possible in a fast, efficient, and repeatable manner.

There are several tools used for automated testing in smart contract auditing, including:

Solidity Testing Frameworks

Solidity is a programming language used to write smart contracts on the Ethereum blockchain. Solidity testing frameworks such as Truffle and Embark provide an easy-to-use environment for writing, testing, and deploying smart contracts. They offer a suite of testing tools and functions, including automated testing, code coverage, and contract testing.

Security Analysis Tools

Security analysis tools such as Mythril, Oyente, and Securify, are designed specifically to identify security vulnerabilities in smart contracts. These tools use automated testing to perform a comprehensive analysis of the code, including checking for common security issues such as unsafe smart contract calls, over-privileges, and reentrancy.

Fuzz Testing Tools

Fuzz testing is a technique that involves randomly generating test inputs and observing the behavior of the smart contract. The goal of fuzz testing is to uncover unexpected or malicious behavior in the code. Tools such as AFLSmart, Mythril, and Hardhat can be used for fuzz testing in smart contract auditing.

What is Dynamic Analysis?

Dynamic analysis is a technique used in blockchain auditing to test the behavior of a smart contract in a live environment. It involves executing the smart contract on a blockchain network and observing its behavior in real-world situations.

It is an important step in the smart contract auditing process as it helps to identify issues that may not have been apparent in the code review or automated testing stages. For example, it can help to uncover issues such as unintended interactions with other smart contracts, race conditions, or performance bottlenecks.

Dynamic analysis can be performed manually or using specialized tools and frameworks. During the dynamic analysis phase, the auditor will create test cases to simulate different scenarios and interactions with the smart contract. These test cases may include normal usage, edge cases, and stress tests.

By observing the behavior of the smart contract in a live environment, the dynamic analysis provides valuable insights into its behavior and performance. It helps to identify potential issues that may not have been apparent in other stages of the audit process and provides a more complete picture of the smart contract’s security and reliability.

History of Auditing

The concept of auditing has its roots in financial accounting and has been used for centuries to ensure the accuracy and reliability of financial records. The first recorded use of auditing dates back to ancient Babylon, where auditors were appointed to examine the accounts of merchants and traders.

In modern times, auditing became more formalized with the advent of double-entry bookkeeping in the 15th century. In the 19th century, the growth of industrialization and large corporations led to the need for more systematic and professional auditing practices. This led to the development of the audit profession, with the establishment of auditing firms and the creation of auditing standards and regulations.

In the field of computer science and technology, the concept of code auditing has been around since the early days of software development. However, with the rise of blockchain technology and decentralized applications, the importance of smart contract auditing has grown substantially in recent years.

The need for security and reliability in blockchain-based systems has led to the development of specialized smart contract auditing services and the expansion of the smart contract audit industry.

Why Auditing is Important in the Blockchain

Auditing is important in the blockchain world for several reasons:


Smart contracts on blockchain networks are immutable, meaning that once they are deployed, their code cannot be changed. As a result, it is crucial to ensure that the code is secure and free of vulnerabilities before it is deployed. A smart contract audit can help identify and prevent security threats such as hacking and exploitation.


Smart contracts are used to automate processes and enforce agreements on blockchain networks. An error in the code can result in unexpected behavior, leading to financial losses or other unintended consequences. A smart contract audit can help ensure that the code is reliable and functions as intended.


Blockchain networks rely on a decentralized network of participants to validate transactions and maintain the network’s integrity. An audited smart contract can improve the trust of the network participants in the code and its underlying logic, helping to ensure the smooth functioning of the network.


In some jurisdictions, there may be legal requirements for smart contracts to be audited before they can be used. An audit can help ensure that the code complies with relevant regulations and standards.

In summary, auditing is important in the blockchain world because it helps to ensure the security, reliability, and trustworthiness of smart contracts and the networks they run on. An audited smart contract can provide peace of mind to its users and help to establish the credibility of blockchain technology.

Auditing Scandals

There have been several high-profile auditing scandals in the blockchain industry. Some of the most notable include:

The DAO Hack

In 2016, a hacker exploited a vulnerability in the code of The DAO, a decentralized autonomous organization built on the Ethereum blockchain, resulting in the loss of millions of dollars worth of Ether. The hack highlighted the importance of thorough smart contract auditing and the potential consequences of neglecting security.

Bancor Hack

In 2018, the decentralized exchange Bancor suffered a security breach resulting in the theft of $23.5 million worth of cryptocurrencies. The incident raised concerns about the security of decentralized exchanges and the importance of regular security audits.

QuadrigaCX Scandal

In 2019, the Canadian cryptocurrency exchange QuadrigaCX suffered a loss of $145 million worth of cryptocurrencies due to the sudden death of its CEO. The incident raised questions about the security and reliability of cryptocurrency exchanges and the importance of proper auditing and risk management practices.

These scandals highlight the importance of auditing in the blockchain industry and the potential consequences of neglecting security. They also demonstrate the need for increased transparency, accountability, and best practices in the development and deployment of smart contracts and blockchain-based applications.


Smart contract auditing is an important part of the blockchain industry. Smart contracts are currently being applied in a number of areas and industries, with important use cases in decentralized finance and the creation of decentralized applications.

They are also being increasingly applied in the Internet of Things (IoT), connecting the world one step at a time.

A security failure in a smart contract can be a very serious issue. In the digital world, hackers could easily embezzle huge sums of money if they get control over these smart contracts. Thus, it cannot be stressed enough how important auditing is in the world of smart contracts.

The editorial content of OriginStamp AG does not constitute a recommendation for investment or purchase advice. In principle, an investment can also lead to a total loss. Therefore, please seek advice before making an investment decision.